S. 194A - Co-operative bank need not deduct tax at source on interest paid to its members

(2014) TaxCorp(LJ) 3362 (ITAT-BANGALORE)

S. 194A - Co-operative bank need not deduct tax at source on interest paid to its members even if the amount exceeded Rs\- 10,000 p.a. It was held that 194A(3)(v) applies to a co-op bank and in view of the exemption, interest cannot be disallowed u\s 40(a)(ia).

Bangalore ITAT bench distinguish ITAT Panaji Bench reported in (2013) TaxCorp(LJ) 2413 (ITAT-PANAJI). This bench noted that the panaji tribunal proceeded on the footing that the Circular No.9 of 2002 has been quashed by the Hon'ble Bombay High Court in the case of The Jalgaon District Central Co-operative Bank Ltd. Vs. Union of India 265 ITR 423 (Bom) and therefore chose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. In our view the Hon'ble Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd.'s case was dealing with a case of challenge 'to para-3 of CBDT Circular No.9 dated 11.9.2002 which tried to interpret the word "member" as given in Sec. 194A(3)(v) of the Act. It is only that part of the Circular that had been quashed by the Hon'ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon'ble Bombay high Court. How could it be said that the entire circular has been quashed by the Hon'ble Bombay High Court? In our view para-2 of the Circular still holds good and the conclusion of the ITAT Panaji Bench in the case reported in (2013) TaxCorp(LJ) 2413 (ITAT-PANAJI) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent. ITAT bench hold that the Assessee which is a co-operative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than time deposits with such co-operative society need not deduct tax at source under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. However find, as submitted by the learned DR, that the orders are not clear as to whether the entire interest disallowed u/s. 40(a)(ia) of the Act relates to interest paid to members or part of the interest is also paid to non-members. We therefore set aside the order of the CIT(A) for the limited purpose of verifying as to any portion of the interest disallowed relates to payment to non-members and in that event restrict the disallowance in so far as it relates to payment of interest by the Assessee to non-members without deduction of tax at source.

Relied on: (2014) 8 TaxCorp (A.T.) 35351 (PUNE), (2011) 5 TaxCorp (A.T.) 26266 (VISHAKAPATNAM)

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